Common Contract for Deed Terms: What You Need to Know

A Contract for Deed, also known as a land contract or an installment sale agreement, is a legal document outlining the terms of a sale between a buyer and a seller. In this kind of agreement, the buyer pays the seller in installments while they occupy and use the property, but the seller retains the title until the last installment is paid. A Contract for Deed can be an option for individuals who have difficulty obtaining traditional financing or for those who want to buy a property directly from the owner. If you are considering entering into a Contract for Deed, here are some common terms you should be aware of:

1. Purchase Price: This is the total amount the buyer agrees to pay the seller for the property. It may also include any down payments made and the interest rate that is being charged.

2. Payment Schedule: This outlines the frequency and amount of payments the buyer will make to the seller. It may also include any penalties for late payments.

3. Default: This refers to a situation where the buyer fails to comply with the terms of the agreement. The contract may specify what actions the seller can take if the buyer defaults, including the right to terminate the agreement and evict the buyer.

4. Balloon Payment: This is a large payment that is due at the end of the payment schedule. It is often used in Contracts for Deed to provide the buyer with a manageable monthly payment, while allowing the seller to receive a lump sum payment at the end of the contract.

5. Interest Rate: This is the rate at which interest is charged on the outstanding balance of the purchase price. It may be a fixed rate or a variable rate that changes over time.

6. Taxes and Insurance: The contract may specify whether the buyer or the seller is responsible for paying property taxes and insurance. In some cases, the seller may require the buyer to pay these costs, which could be included in the monthly payment.

7. Right of Possession: This outlines the right of the buyer to occupy and use the property during the term of the agreement. The contract may specify what actions the seller can take if the buyer violates this right.

Contracts for Deed can be a viable option for individuals who want to buy a property and cannot obtain traditional financing. However, it is important to understand the terms of the agreement before signing. If you are considering a Contract for Deed, consult with a real estate attorney or a financial professional who can help you navigate the process and ensure that you are making an informed decision.